How Obamacare screwed up first-quarter U.S. growth estimates

So was Obamacare a blessing for the economy in the first quarter, or a curse? We still don’t really know – because the government doesn’t really know.

The Bureau of Economic Analysis previously reported that health-care spending rose by an annual rate of 9.1% in the first quarter. Now it says spending at hospitals, doctor offices and the like actually fell 1.4%.

Whoops.

In dollar terms, spending on health care dropped by an annualized $6.4 billion instead of soaring by $39.9 billion as previously reported.

That’s a massive change. Enough, indeed, to spur the government to lower the decline in first-quarter growth to 2.9% from 1% in its most recent update regarding what happened during the first three months of the year. That’s the biggest drop in gross domestic product outside of a recession since World War Two.

Originally the government said the economy had slipped just 0.1% in the first quarter. What happened? Put simply, the BLS grossly miscalculated how much Americans spent on health care in the first quarter. Staticians expected the introduction of Obamacare to encourage people who previously did not have health insurance to see a doctor or go to the hospital for treatment of long-ignored problems. Yet no big increase evidently occurred, based on new information from medical providers.

In some respects, the decline in health-care spending in the first quarter should be viewed with alarm. Sure, Americans would rather spend less on health care, but with an aging population, more services are required and the industry does provide employment for nearly 15 million people.

Outlays on health care also account for about 17% of consumer spending – the main driver of U.S. economic activity – and any prolonged weakness would undermine the official tally on how the economy is growing.

But Wall Street economists have trouble accepting the newly updated numbers, which show the biggest quarterly drop in 32 years. They find it hard to believe that health-care outlays actually fell in a period when more Americans were able to obtain insurance.

“The marked changes in the health-care system this year have obviously generated difficulty in tabulating activity,” said Michael Moran, chief economist of Daiwa Capital Markets America.

Nor is the rollercoaster ride necessarily over. The government will update first-quarter GDP once again in July when it peforms its annual benchmark revisions. There’s no telling what the pace of health-care – and economic growth – in the first quarter will look like in another month.